Upload
internetcases
View
214
Download
0
Embed Size (px)
Citation preview
8/14/2019 frees v mcmillan
1/11
The Motion for Partial Summary Judgment also seeks a ruling from the Court that1
Frees is barred, as a matter of law, from recovering statutory damages under the CopyrightAct. See Record Document 82-3 at 8-9. This issue is moot because Frees conceded inits opposition that it was not seeking an award of statutory damages under the Copyright
Act, but rather was seeking actual damages. See Record Document 89-1 at 18.Accordingly, the Motion for Partial Summary Judgment as to statutory damages under theCopyright Act is DENIED AS MOOT.
UNITED STATES DISTRICT COURTWESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION
FREES, INC. CIVIL ACTION NO. 05-1979
VERSUS JUDGE S. MAURICE HICKS, JR.
PHIL MCMILLIAN, ET AL. MAGISTRATE JUDGE HAYES
MEMORANDUM RULING
Before the Court is Phil McMillians and Tony Piercealls (Defendants) joint Motion
for Partial Summary Judgment (Record Document 82), which seeks to have Frees, Inc.s
(Frees) Computer Fraud and Abuse Act claims dismissed, or in the alternative, to have
the lost profits allegedly suffered by Frees excluded from the amount of recoverable
damages. Frees opposes the motion. For the reasons that follow, Defendants motion is
DENIED.1
I. FACTUAL BACKGROUND
Frees provides ventilation and dust control systems to manufacturers in the
fiberglass reinforced product industry. See Record Document 1-1, 6. Frees has spent
considerable time, money and effort to research and develop methods which are unique
in the industry. See Record Document 1-1, 7-8. In order to protect its trade secrets,
Case 5:05-cv-01979-SMH-KLH Document 119-1 Filed 08/06/2007 Page 1 of 11
8/14/2019 frees v mcmillan
2/11
Page 2 of 11
Frees requires employees, potential employees, customers, potential customers, and
vendors to sign confidentiality agreements. See id., 8.
Defendants are former employees of Frees. See Record Document 95 at 1.
McMillian was employed as a senior manager and vice-president in charge of sales and
day-to-day management of the business. Pierceall was responsible for designing
ventilation systems. See id. During their employment, Frees provided McMillian and
Pierceall with computers which, according to Frees, contained trade secrets, proprietary
information and other data (hereinafter collectively referred to as data) belonging to
Frees. See Record Document 1-1, 16,18.
In mid-2002, Southeast expanded its business by providing industrial ventilation and
dust control systems. See Record Document 95 at 2. At different times, Southeast hired
two former Frees employees, defendants McMillian and Pierceall. See id. McMillian and
Pierceall, in turn, are alleged to have loaded Frees proprietary data onto Southeasts
computers, which they apparently used as Southeasts employees to design, construct,
implement, and/or market industrial fiberglass ventilation and dust control systems in
competition with Frees. See id. McMillian is also alleged to have deleted data from the
Frees computers before he left Frees employment, which resulted in Frees expending
$2,000 to INS-Triad for a forensic investigation of the computers, $11,000 to
CyberControls, LLC, for consultation and forensics work, and $3,500 to MMCC for a
forensic investigation of the current home and work computers of McMillian. See Record
Document 89-1 at 2. Frees did not suffer an interruption of service as a result of the
misconduct. See Record Document 82-2 at 1.
Frees filed the above-captioned suit alleging copyright infringement and violations
Case 5:05-cv-01979-SMH-KLH Document 119-1 Filed 08/06/2007 Page 2 of 11
8/14/2019 frees v mcmillan
3/11
8/14/2019 frees v mcmillan
4/11
Page 4 of 11
F.3d 624, 626 (5th Cir. 2001). However, the Court will not assume that the nonmoving
party could or would prove the necessary facts. See Liquid Air Corp., 37 F.3d at 1075.
The nonmoving partys burden will not be satisfied by some metaphysical doubt as to the
material facts, by conclusory allegations, by unsubstantiated assertions, or by only a
scintilla of evidence. Id. Therefore, summary judgment is appropriate in any case where
critical evidence is so weak or tenuous on an essential fact that it could not support a
judgment in favor of the nonmovant. Armstrong v. City of Dallas, 997 F.2d 62 (5th Cir.
1993); see generally Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574,
586-87, 106 S.Ct. 1348, 1356 (1986).
With these principles in mind, we now turn to a review of the claims at issue in the
instant motion.
B. Computer Fraud and Abuse Act.
The CFAA provides:
Any person who suffers damage or loss by reason of a
violation of this section may maintain a civil action against theviolator to obtain compensatory damages and injunctiverelief or other equitable relief.
18 U.S.C. 1030(g) (emphasis added). As the plain language of statute makes clear, only
a person who has suffered damageor loss can maintain a cause of action. The CFAA
defines damage as any impairment to the integrity or availability of data, a program, a
system, or information. 18 U.S.C. 1030(e)(8). Loss is defined as any reasonable cost
to any victim, including the cost of responding to an offense, conducting a damage
assessment, and restoring the data, program, system, or information to its condition prior
to the offense, and any revenue lost, cost incurred, or other consequential damages
Case 5:05-cv-01979-SMH-KLH Document 119-1 Filed 08/06/2007 Page 4 of 11
8/14/2019 frees v mcmillan
5/11
Page 5 of 11
incurred because of interruption of service. 18 U.S.C. 1030(e)(11). If the plaintiff has
suffered only loss, the statute requires the plaintiff to establish a jurisdictional threshold,
or loss aggregating at least $5,000 in value, to maintain a cause of action. 18 U.S.C.
1030(a)(B)(i).
1. Loss
Frees alleges the following expenditures constitute loss:
Payment of $2,000 to INS-Triad for a forensicinvestigation of the prior work computer of McMillian;
Payment of more than $11,000 to CyberControls, LLC,
for consultation and forensics work relating to thecomputer problems alleged to have been caused byMcMillian and Pierceall; and
Payment of $3,500 to MMCC for forensic investigationof the current home and work computers of McMillian.
See Record Document 89-1 at 2.
McMillian and Pierceall contend that Frees has not met the jurisdictional threshold
because the expenses allegedly incurred by Frees do not constitute loss as defined by
the CFAA. However, this argument fails. Loss is not limited to actual repairs. Nexans
Wires S.A. v. Sark-USA, Inc., 319 F. Supp. 2d 468, 475 (S.D.N.Y. 2004); S. Rep. 4702-02
(1986). Courts have consistently interpreted loss, both before and after the term was
defined in the 2001 amendment, to mean a cost of investigating or remedying damage to
a computer, or a cost incurred because the computers service was interrupted. See
Nexans, 319 F. Supp. 2d at 475.
During oral argument, defense counsel argued that expert fees of this type do not
constitute loss. This argument is without merit. In fact, the case repeatedly cited by
Case 5:05-cv-01979-SMH-KLH Document 119-1 Filed 08/06/2007 Page 5 of 11
8/14/2019 frees v mcmillan
6/11
Page 6 of 11
defendants supports a finding of loss. In Resdev, LLC v. Lot Builders Assn, Inc., 2005
WL 1924743, *4 (M.D. Fla. 2005), the court stated:
The CFAA defines loss in terms of any reasonable
cost. (Internal citation omitted). Cost ordinarilymeans an amount paid or charged for something; priceor expenditure. Blacks Law Dictionary 371 (8th ed.2004).
The cost of hiring an expert to investigate the computer damage is clearly a reasonable
cost sufficient to constitute loss under the CFAA. 18 U.S.C. 1030(e)(11); Dudick, ex
rel. Susquehanna Precision, Inc. v. Vaccaro, 2007 WL 1847435, *5 (M.D. Pa. 2007)
(holding that the time and resources spent and the cost of hiring an expert to research and
assess the unauthorized information and assets are costs explicitly identified in the CFAAs
definition of loss); Kaufman v. Nest Seekers, LLC, 2006 WL 2807177, *8 (S.D.N.Y. 2006)
(the cost involved in investigating hacking and unauthorized access, investigating the
damage, and revealing the infringing activity constitutes loss as defined by the CFAA);
Nexans Wires S.A. v. Sark-USA, Inc., 319 F. Supp. 2d 468, 474 (S.D.N.Y. 2004) (finding
that loss includes the costs associated with investigating the damage to the computer),
affd, 166 Fed. Appx. 559 (2nd Cir. 2006); E.F. Cultural Travel BV v. Explorica, Inc., 274
F.3d 577, 585 (1st Cir. 2001) (finding that the loss suffered by plaintiffs, in having to
expend substantial sums to assess whether there was any physical damage to their
website, is not lessened simply because no damage occurred).
Accordingly, the expenditures allegedly incurred by Frees, which, when aggregated,
exceed the $5,000 threshold requirement, are sufficient to constitute loss under the
CFAA. The Court will now proceed to Defendants alternative argument, that Frees cannot
recover lost profits absent an interruption of service.
Case 5:05-cv-01979-SMH-KLH Document 119-1 Filed 08/06/2007 Page 6 of 11
8/14/2019 frees v mcmillan
7/11
Page 7 of 11
2. Recoverable Damages Under the CFAA.
Defendants contend that lost revenues are not compensable damages in this case
because there has not been an interruption of computer service. See Record Document
82-3 at 1. They argue the phrase any revenue lost, cost incurred, or other consequential
damages incurred because of interruption of service is not only a jurisdictional threshold,
but also a limitation on the types of recoverable damages. 18 U.S.C. 1030(e)(11). Frees
rejects this contention, arguing that a plaintiff is entitled to recover ordinary compensatory
damages once the jurisdictional threshold has been met.
The Fifth Circuit has not addressed this issue and the circuits addressing the issue
are split. See Nexans Wires S.A. v. Sark-USA, Inc., 166 Fed. Appx. 559 (2nd Cir. 2006);
Creative Computing v. Getloaded.com LLC, 386 F.3d 930 (9th Cir. 2004). The Ninth
Circuit held that loss of business and business goodwill constitutes recoverable damages
under the CFAA, but the Court failed to provide any discussion or give any reason for its
holding. See Creative Computing, 386 F.3d at 936. Conversely, the Second Circuit
excluded lost profits from the recoverable damages, stating:
As the district court correctly recognized, the plain language ofthe statute treats lost revenue as a different concept fromincurred costs, and permits recovery of the former only whereconnected to an interruption of service.
Nexans, 166 Fed. Appx. at 562. However, the district court in Nexans simply found that
the plaintiff did not allege loss sufficient to establish the jurisdictional threshold; the court
did not discuss whether lost profits would be recoverable as damages, nor did the court
address the issue.
Both the plaintiff and defendants cite district court cases in support of their
Case 5:05-cv-01979-SMH-KLH Document 119-1 Filed 08/06/2007 Page 7 of 11
8/14/2019 frees v mcmillan
8/11
Page 8 of 11
contention. Yet, most of the cases cited by the plaintiff are interpreting the pre-2001
version of the CFAA, and nearly all of the cases cited by defendant rely on Nexans in
support of their proposition. The Court finds none of those cited cases, including the two
Circuit Court decisions, persuasive or controlling. Rather than relying on dicta or pre-2001
decisions, the Court will instead look to the basic principles of statutory construction to
resolve the conflict.
Statutory interpretation begins with the language of the statute itself. There is a
presumption that Congress says in a statute what it means and means in a statute what
it says. See Connecticut Nat. Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146
(1992). In fact, the first rule in statutory construction is to determine whether the language
at issue has a plain and unambiguous meaning. See Lamie v. U.S. Trustee, 540 U.S. 526,
124 S.Ct. 1023 (2004). If the statutory language is plain and unambiguous, the courts
should not consider extrinsic materials and should not derive from such materials an
interpretation that is inconsistent with the statutes plain meaning. See Guilzan v. C.I.R.,
985 F.2d 819 (5th Cir. 1993). Most importantly, the court cannot assume Congress
intended to say something other than what is plainly stated.
Generally, a statutory definition of a term excludes any other meaning, even if it
varies from the ordinary meaning of the term. If a word is not specifically defined, it is
presumed to have its ordinary, contemporary, common meaning. Perrin v. United States,
444 U.S. 37, 42, 100 S.Ct. 311 (1979). However, if a term has an accumulated, settled
meaning under common law, the courts must infer that Congress intended to incorporate
that established meaning. See McDermott Intern., Inc. v. Wilander, 498 U.S. 337, 111
S.Ct. 807 (1991).
Case 5:05-cv-01979-SMH-KLH Document 119-1 Filed 08/06/2007 Page 8 of 11
8/14/2019 frees v mcmillan
9/11
Section 1030(a)(5)(B)(i) provides that whoever by conduct described in clause (i),2
(ii), or (iii) of subparagraph (A), caused (or, in the case of an attempted offense, would, ifcompleted, have caused) . . . loss to 1 or more persons during any 1-year period (and, forpurposes of an investigation, prosecution, or other proceeding brought by the United Statesonly, loss resulting from a related course of conduct affecting 1 or more other protectedcomputers) aggregating at least $5,000 in value.
Page 9 of 11
It is also an elementary rule of statutory construction that every word and phrase
has a purpose. Thus, in determining the meaning of a statute, the court must be careful
not to construe the statute in way that renders one part ineffective or inoperative. See
United States v. Nordic Village, Inc., 503 U.S. 30, 112 S.Ct. 1011 (1992).
The CFAA provision at issue is 18 U.S.C. 1030(g), specifically the term
compensatory damages. This term is not defined by the statute, but because
compensatory damages is a legal term of art, it is presumed that Congress intended to
incorporate its established meaning into the statute. Hence, it is presumed that
compensatory damages means damages sufficient in amount to indemnify the injured
person for the loss suffered. See Blacks Law Dictionary (8th ed. 2004). The term
includes all damages other than punitive or exemplary damages. 22 Am. Jur. 2d
Damages 24 (emphasis added). Moreover, it is presumed that Congress legislates with
the basic knowledge of statutory construction. Had Congress intended a different
meaning, they could have easily added a statutory definition of compensatory damages,
just as they added the definition of loss in the 2001 amendment.
Congress did specifically express an intent to limit damages for conduct solely
violating Section (a)(5)(B)(i). Damages recoverable for such a violation are limited to2
economic damages. 18 U.S.C. 1030(g). The term economic damages was not
statutorily defined, but courts have consistently held that this term has its ordinary
Case 5:05-cv-01979-SMH-KLH Document 119-1 Filed 08/06/2007 Page 9 of 11
8/14/2019 frees v mcmillan
10/11
Page 10 of 11
meaning, i.e., simply prohibiting damages for pain and suffering, emotional distress, and
other like damages. See Creative Computing v. Getloaded.com LLC, 386 F.3d 930 (9th
Cir. 2004); P.C. Yonkers, Inc. v. Celebrations the Party & Seasonal Superstore, LLC, 428
F.3d 504 (3rd Cir. 2005); In re Doubleclick Privacy Litig., 154 F. Supp. 2d 497 (S.D.N.Y.
2001). Similarly, without an express indication to the contrary, compensatory damages
must be interpreted to have its ordinary, established meaning, thereby allowing lost
profits as recoverable damages.
Further, interpreting the statute to limit the recovery of lost revenue would lead to
absurd results. The CFAA defines damage in terms of non-economic harm and loss
in terms of economic harm. 1030(e)(8), (11). If the Court were to find that these terms
were limitations on damages, a plaintiff would be unable to recover any monetary relief
where he suffered only damage, but no loss. When a defendant copies unauthorized
data to gain a competitive edge, it makes no sense to limit the plaintiffs recovery when the
lost revenue is a direct result of defendants misconduct.
The language of the statute is plain and unambiguous and it is unnecessary for the
Court to consider extrinsic materials. But even if the statutory language was ambiguous,
the Court finds that the numerous references to the jurisdictional threshold in the CFAAs
legislative history effectively expresses Congress intent. Congress explained that the
required monetary threshold was established to define conduct punishable as a
misdemeanor or as a felony. S. Rep. 104-357 (1996); S. Rep. 4072-02 (1986). As
Congress stated, [i]n instances where the requisite dollar amount cannot be shown,
misdemeanor-level penalties will remain available against the offender under the trespass
statute... [T]he valuation will... help determine whether the act constituting the offense is
Case 5:05-cv-01979-SMH-KLH Document 119-1 Filed 08/06/2007 Page 10 of 11
8/14/2019 frees v mcmillan
11/11
Page 11 of 11
punishable as a felony or a misdemeanor. S. Rep. 4072-02 (1986). The legislative history
does not contain any indication of Congress intention to limit the scope of recoverable
damages in a civil action.
Accordingly, the Court finds that the terms damage and loss are terms of art used
to define a jurisdictional threshold; they do not control or limit what damages are available
in a civil action if the substantive and threshold standards are not met. Rather, Congress
used the terms compensatory damages and economic damages to define the scope of
recovery, and those terms will be given their ordinary meaning in interpreting the CFAA.
III. CONCLUSION
For the foregoing reasons, the Court finds that Frees has established the CFAAs
jurisdictional threshold and that the CFAA does not limit the recovery of lost profits as an
element of compensatory damages solely to instances where there was an interruption of
service. Further, Frees has conceded that it is pursuing actual damages, not statutory
damages, under the Copyright Act.
Accordingly,
IT IS ORDERED that McMillians and Piercealls Motion for Partial Summary
Judgment (Record Document 82) be and is hereby DENIED.
THUS DONE AND SIGNED in Shreveport, Louisiana, this the 6th day of August,
2007.
Case 5:05-cv-01979-SMH-KLH Document 119-1 Filed 08/06/2007 Page 11 of 11